UTi Worldwide is standardising its organisation to better replicate global services from one market to another. Christopher Ludwig finds the firm’s top executives believe great logistics services begin with the car industry
UTi Worldwide might not be the most recognisable name or the largest player in the automotive logistics business, but the Long Beach, Californiabased company has expanded quickly as a global, non-asset based third party provider (3PL) over the past decade, with more than $1.5 billion in net revenue in the 2010-2011 financial year. As much of its growth has been through acquisitions, the company has been sharpening its approach by adopting common business processes together with the development of a vertical-based strategy led in many ways by services to the automotive industry.
With a number of regional centres of excellence across the Americas, Europe, Africa and Asia Pacific, UTi’s automotive offerings are already global. They are also wider in scope than transport and warehousing, including strategic supplier assessments, lead logistics capabilities, sequencing, kitting and even outright manufacturing, as in the case of its acquisition of a circuit board manufacturer in Canada.
“For UTi, the automotive vertical is probably the most unique and the deepest in terms of the breadth of services that we provide,” says Eric Kirchner, chief executive officer since 2009. “Other sectors arguably do not demand the same level of supply chain design and added value that automotive does.”
Automotive is also one of the largest revenue generators for UTi. For the financial year 2010-2011 (UTi’s financial calendar ends January 31st each year), automotive and consumer and retail represented the largest verticals. However, according to Jens Möller, senior vice president for automotive, in the past year automotive has grown substantially and will become the company’s largest vertical this financial year (UTi’s full-year reporting for 2011-2012 had not been released at the time of going to press).
But while its services may be deep and broad, UTi has been in the midst of an evolution to harmonise operations both externally and internally by way of IT and back office functions. The goal, according to Möller, is to offer customers a single brand “with the same touch and feel” across the world.
OEMs should be able to recognise the company’s services at a global level, and see them replicated to equal standards at different regional levels, believes Möller, who leads a dedicated, global team of automotive experts making sure this is possible.
It might sound basic, but convincing OEMs that success in one market should translate into business with it in another is not as easy as it may sound. What’s more, a history of acquisitions left UTi with some regional fragmentation. “The company has evolved from a regional bias based on four key founders in four regions, and it lacked consistency,” says Kirchner. “Each region had solid operations with solid processes but they weren’t similar.”
One of the first steps, begun six years ago, was to develop the verticals, led in large part by Jochen Freese, today president of UTi’s Europe, Middle East and North Africa region (EMENA). When Freese joined the company in 2006, there was no vertical structure and UTi executed services on a more regionally independent basis. Automotive was the first global vertical that Freese and his team set out to build.
The idea was simple in principle but complex in execution, as UTi built capabilities around industries with defined customer needs. “In an industry like automotive there are certain requirements, capabilities, legal issues and geographical aspects that need to be aligned,” says Freese. “We use our transport network as a platform but then we have specific capabilities or people that deliver on certain processes that can be replicated for different client groups around the globe.”
If the first part of addressing this fragmentation was to create a vertical approach across its business, the next stage was to redefine UTi’s own processes. Kirchner is currently leading this transformation through a five-year plan known as ‘client as one’, which he describes as nothing less than a “comprehensive business process transformation”.
Kirchner is no stranger to difficult mergers and integrations. He started his career in 1981 at a US freight forwarder called CF, which later acquired an international forwarder and air carrier called Emery (the company would eventually become Menlo Worldwide Forwarding). After losing substantial sums of money, the company eventually integrated the acquisition and was successful, driven partly by winning a major General Motors contract. In 2004, with Kirchner as COO, Menlo Worldwide Forwarding was sold to UPS, where he went on to run the freight forwarding business and integrate operations into UPS’s existing structure.
These experiences helped Kirchner understand the value of a consistent global operation. As such, he has geared ‘client as one’ into three broad groupings: ‘one team’, ‘one focus’ and ‘one world’. ‘One team’ is based around staff training and development, ‘one focus’ around business development and client relations, and ‘one world’ aims to bring consistency to global operations.
The approach has changed UTi’s business practices, from implementing new back office systems to introducing one global sales tool platform, as well as the introduction of a new freight forwarding operating system. “Our goal is to get common operating processes within each region,” says Kirchner. “We are changing how we execute, improving the service delivery to our clients and ultimately lowering our costs.”
The processes are being determined by global steering committees that carefully review and decide which approaches should be harmonised. The new freight forwarding operating system, currently at pilot stage in Europe, is one of the most critical aspects of this change. According to Kirchner, the system, developed in-house, links together a warehouse management system with air, ground and ocean visibility together with carriers’ system to give customers a more complete supply chain view and help them to react faster to potential disruptions.
“We will have linkages to our carrier partners’ systems to see the goods in real time and then back to the supplier level, which is going to be very key for our clients. We’re not there yet completely but in the next 18-24 months we will make a lot of progress.”
Freese adds that the system has tremendous value as it will work on one platform across the business. “It’s a very big step. Many providers in the industry still have different systems and a fair amount of work goes into aligning information. We will be moving to a different level of automation now,” he says.
It is probably no coincidence that ‘client-as-one’, with its emphasis on unified operations across the world, echoes some other corporate strategies in the automotive industry, such as the ‘one Ford’ approach. Just as OEMs are trying to save costs by standardising parts across global platforms, so too is UTi striving to spin its services off a kind of global logistics platform. In successful cases, UTi’s services in one market could travel with a global OEM to numerous production locations. Freese says that UTi has seen particular success in this strategy for materials management.
South Africa, where UTi has the leading market share in the automotive logistics market, is a case in point. Here, the company works across almost every major OEM, and in some cases the services are being replicated for them elsewhere.
“Jointly with GM, for example, we developed value-added services for both in-house and order management, which led to an award-winning solution to control the total supply chain from Spain and then from all of Europe [into South Africa],” he says. “The project then flowed into South America, where we have implemented a similar approach, and has since moved to South Korea and to Thailand.”
As a medium-term strategy, Kirchner says that UTi aims to transfer some of the services that it already performs for OEMs in emerging markets to their home markets–examples would be companies like Chrysler in the US or Volkswagen in Germany. Kirchner sees this approach as particularly relevant to Europe, where UTi has more exposure to troubled markets in Southern Europe or the UK than it does to stronger German OEMs that are expanding globally. “What we’ve found is that our performance in emerging markets has helped us to gain opportunity,” says Kirchner. “We’re able to operate in some of the more challenging parts of the world and we’re taking the reverse approach to gain market share in the home markets of these OEMs.”
However, Möller recognises that transplanting emerging market strategies back to mature markets is also not easy, particularly if OEMs see you as a ‘local provider’.
“If you are only working with an OEM in one location, it won’t help you get to its home market, as you are considered a ‘local player’,” Möller says. “You often need to have replicated the services in several emerging markets, and then you’ve got the attention of the top executives and you might get the chance to apply for business in the mature market.”
Kirchner says that automotive growth has been a “pleasant surprise over the past 18 months”, particularly in such a volatile economy. But he recognises risks, particularly in Europe, as well as slower growth in emerging markets and the escalating price of oil, which could slow the US recovery too.
UTi has therefore taken a conservatively optimistic budget approach to the coming year, with expectations for a slow first half, but with the potential to grow in the second half. For automotive, areas of focus and investment include border activities between the US and Mexico, such as customs clearance and crossdock operations. Kirchner identifies growth potential in regional sourcing for North America, with increasing labour costs in places like China, rising fuel costs and increased awareness of supply chain risks. “We believe companies will look for a more diversified sourcing strategy and it makes sense that some of that sourcing will come back to North America in a regional way,” he says.
Freese says that he sees similar potential in Europe as well, where some sourcing has come back from Asia to Central and mostly Eastern Europe. He says that sourcing even in Southeast Europe and North Africa has “stagnated” somewhat, partly as a result of political unrest, but also from an effort to keep supply lines closer. “If you look back last year following the revolution in Egypt, we flew 747 cargo planes out of the country to keep supply lines up. As an example, I believe Egypt has a real future in automotive supply, but a few weeks of that will cancel out labour savings accrued over years,” he says.
Möller and Freese emphasise that the heightened focus on supply chain risk, reinforced by events in Japan and Thailand last year, has strengthened the case for more supply chain mapping. “We’re working to provide visibility and transparency of the cost of those movements,” say Möller. “Sometimes as an industry we are not always open about those things because it requires a joint approach to come up with a true landed cost. But OEMs are getting more accurate and precise.”
Möller adds that OEMs are also making progress in this area within their own organisations. He points to initiatives such as GM’s ‘total enterprise cost’ purchasing method, which seeks to quantify supply chain risk and disruptions into sourcing decisions, as well as consider logistics and supply chain design earlier in the development process of a vehicle.
Kirchner stresses that UTi will not only invest in what it takes to be a bigger player in automotive, but will use that scale and range in the rest of its business, both in increasing its transport procurement power and in developing sophisticated and reliable services. In a sense, he believes that if UTi can make it in automotive, it can make it anywhere. “Within the space of supporting automotive clients, precision and service delivery are crucial, as there would be obvious implications if we were to cause a $250,000 problem after shutting down an assembly line for 30 minutes,” says Kirchner. “Forcing that discipline in automotive has really been helpful in cascading those same principles to other areas of our business.”